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ATP, the Danish public pension fund, is altering the way it will pay out pensions in future, due to its increasing concerns over the liquidity of the Danish and German government bond markets.

The Danish fund, which manages Dkr618 billion, or €83 billion, has said it would have to reduce the certainty of the pension promise given to its members from now on, thanks to the tougher trading conditions.

ATP's concerns stem from the stricter regulation and tougher capital requirements placed on banks since the aftermath of the 2008 financial crisis. Regulators have discouraged banks from holding large inventories of bonds on their books, which means it can be tougher for them offer liquidity to buyers and sellers.

The pension fund says its problem is particularly acute with long-dated bonds.

Carsten Stendevad, ATP chief executive officer, said that when he joined the fund in June 2013, "ATP owned about 22% of the longer-dated end of the German government bond market. That has fallen now, but we are still a sizeable participant."

He added: "Clearly, regulation and higher capital requirements seem to have made it more difficult for banks to provide the market-making liquidity they once did at the longer-end of the yield-curve."

But corporate bond liquidity in the secondary market has declined by around 70% in roughly the same period, according to Royal Bank of Scotland, as banks have been told they cannot hold these assets to facilitate trading.

ATP has tweaked its pension model to increase the amount of short dated bonds as a result of these liquidity concerns.

At present, ATP operates a sophisticated partial guarantee model, whereby 80% of members' payments are converted into a defined pension promise, to be paid out many decades hence. The remaining 20% is invested in a non-guaranteed "bonus" pool.

Long-dated assets suited such a long-term guarantee model.

Now, a member's guaranteed pension will be re-calculated after 15 years, and then on a rolling basis. For example, the first year's payment from the 20-year old will be reviewed at age 35 and again at age 50. The second year's payment will be reviewed at 36 and again at age 51, and so on.

After 50, each year is calculated individually until retirement.

Pensions can still only go up, never down, ATP stressed - but in future they may go up by less than they would have under the current regime. The change will affect ATP members under the age of 50, who account for about 2.1 million of its 4.7 million membership.

All this means that in the first phase of its members' savings career, ATP won't need to invest in any bonds longer-dated than 15 years. Happily, there is no shortage of these. The pension fund will still need longer-dated assets to back the promises made to the over-50s, however, as these guarantees may still have to last as long as another half-century.

Stendevad said: "We will still need some long-dated assets, but as we will no longer need them for the younger members, this significantly reduces our requirement. This adjusts what we need to buy in line with the reality of what is available in the market."

ATP's measures come into effect on January 1 next year, and will only affect new pensions entitlements built up from that date.

-- Correction: This article was updated at 17:34 BST on August 13 to replace the phrase "slightly weaken the pension promise" with "reduce the certainty of the pension promise" as this is a better reflection of the change, as rates may improve as well as decline in future years.

The article was also amended to reflect the fact that the change to ATP's pensions payouts will only affect scheme members under the age of 50, who account for 2.1 million of its 4.7 million membership. Previously, it incorrectly stated the change would apply to all members.